IRS Doesn't Know Who Owes Obamacare Medical Device Tax, Collects Less Than Expected


Steven Fruitsmaak/Wikimedia Commons

From the department of Who Could Have Predicted That? comes news that the Internal Revenue Service is blowing the collection of the medical device tax, one of the revenue streams expected to fund Obamacare. "the IRS cannot identify the population of medical device manufacturers registered with the Food and Drug Administration that are required to file a Form 720 and pay the excise tax," the Treasury Inspector General for Tax Administration (TIGTA) tells us in a July report publicly released this week.

Collections have been a tad less than expected too, which isn't so surprising given that the tax collectors don't really know who is supposed to pay it. The IRS "reported excise taxes of $913.4 million for the quarters ending March 31 and June 30, 2013," the TIGTA report tells us. But $1.2 billion was expected—on far more returns than were filed.

The 2.3 percent tax on the sales price (not profits) of medical devices kicked in on January 1, 2013 and is supposed to generate $20 billion through 2019 as part of the effort to keep the administration's signature Affordable Care Act economically viable. AdvaMed, the medical device trade group, protested from the beginning that the tax is a bureaucratic headache that would drive jobs and innovation overseas. At Forbes, John R. Graham suggests that American medical device makers are already losing sales to foreign competitors, at least partly as a result of the tax. Boston's WBUR reported last year that the medical device industry shed thousands of jobs, at least partially in anticipation of the tax (the medical device industry is huge in Massachusetts, though maybe not so huge as it was).

Remember that the tax is on gross receipts, not profits, so it digs deep.

And now we find that the tax isn't bringing in the anticipated cash flow, and its enforcement is a mess. That's a shocker.

NEXT: The Last Ship and Television's Post-Apocalyptic Era

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  1. Maybe if they called it the Medical Device Penalty…

    1. Do the comments look weird to anyone else?

      1. Yes. They’re indented way more than normal and have a bullet point next to the commenter name.

        1. They just reverted to proper style for me.

          1. Ugly dots and indents? Proactiv works fast.

        2. Mine have no bullet points but I have seen others say they have them on a different thread.

      2. Bullet points?


      3. It’s just you

      4. If you’re seeing spots, you should probably call your doctor.

  2. medical decice tax


    1. the administration’s aignature Affordable Care Act

  3. For anyone not in the business world, 2.3% of revenue = a 2.3% reduction in contribution margin, which for any company I’ve ever worked for is HUGE. If you are a relatively small player at $50 million in sales, that’s a $1.1 million dollar hit.

    Or 36 jobs at $15/hour. I mean…fuck.

    1. For anyone not in the business world in government, 2.3% of revenue = a 2.3% reduction in contribution margin, which for any company I’ve ever worked for is HUGE.

      We are government by vicious morons.

      1. *governed.

    2. I think you are understating it, Mainer2.

      If your contribution margin is 4.6% (you keep $46K for every $1mm of gross revenue), that 2.3% gross revenue tax reduces your contribution margin by 50%.

      If your contribution margin is 2%, that gross revenue tax puts you in the red.

      1. To be sure, I was saying 2.3 points off your margin. Say your direct contribution before Overhead is 35%. Giving up 2.3 points drops your margin to 32.7%. No business can take hit like that without reacting.

        1. Profits are evil so this just helps businesses with their inherent immorality issues.

          See, the government does love us, even against our wishes.

      2. The rationale is that they’ll have so much more business that they’ll still win. But the simple calculation is that they’ll need NM/(NM-2.3%) times more sales just to break even, where NM=original net margin. So if their original net margin were 4.6% in your example, they would need double the sales just to make the same profits they were before. What a deal.

  4. This was always one of the stupidest aspects of the ACA. You’re going to make health care more affordable by taxing medical devices? Brilliant! And then when manufacturers move overseas, they’ll complain about outsourcing….

    1. And a lack of patriotism.

      1. Damn your quick fingers!

    2. And then when manufacturers move overseas, they’ll complain about outsourcing

      B-b-but… ECONOMIC PATRIOTISM!!!1!!11!!

    3. Aren’t they going to start taxing health insurance itself at some point…an excise tax on “caddilac” plans ?

      There is lots of competition for the stupidest aspect of Obamacare.

      1. It’s worse than that. There’s a huge tax on “Cadillac plans,” and smaller one on all plans.

    4. And then when manufacturers move overseas, they’ll complain about outsourcing slap hefty tariffs on imported medical devices, making them even more expensive….


    5. It seems infinitely recursive to me? we’re going to make healthcare cheaper by subsidizing it with taxes on healthcare supplies.

      1. The IRS assures me that they’ll make it up in volume.

  5. The only way the IRS can enforce any tax laws is through an audit.
    This is a bullshit tax but all they have to do is add a question on the Corp. Tax return: “What were your sales of medical devices?
    Multiple answer by 2.3% and add to tax liability on line X.” If company says “zero” and audit shows otherwise, they the IRS is looking at something more than an honest mistake.

    1. All implanted devices have to be reported to the FDA. I’m sure they’ll write themselves a HIPAA waiver to get at that data.

  6. Well, clearly evul Kochporashunzz are not filing properly. The IRS just needs more auditors to find out which companies are doing this, and then penalize the SHIT out of them when they’re found.

    Bam – problem fixed. Plus – jobs.

    You’re welcome.

  7. Complexity and yet more complexity, guaranteed to work

  8. Stifling innovation is the key to funding healthcare! Just think how much better off we would be if our ancestors had the foresight to do this and we were still using 1950s era medical technology. Or even 1900s era medical technology.

    1. All that new shit is expensive!

    2. But think of how much cheaper it would be! Talking about bending the cost curve. All hail Obama!

    3. Leeches are making a comeback. If only we could have 1900 Coca Cola – with real coca.

      1. Doctor: You know the leech comes to us on the highest authority?

        Edmund: Yes. I know that. Dr. Hoffmann of Stuttgart, isn’t it?

        Doctor: That’s right, the great Hoffmann.

        Edmund: Owner of the largest leech farm of Europe.

        Doctor: Yes. Well, I cannot spend all day gossiping. I’m a busy man. As far as this case is concerned I have now had time to think it over and I can strongly recommend a [in chorus] course of leeches.

  9. Perhaps the IRS should pull some people off of conservative-persecution and harddrive-destruction duties.

  10. This is such an idiotic tax. Some technologists say that medical devices are going to lead to more personalized, effective, life-saving medicine. Here’s an article about a biotech CEO who thinks that we may soon be able to run 70 tests on a gizmo with a small pinprick of blood. Other people, serious people, are even more ambitious. This could turn medicine into something governed by Moore’s Law.

    Why in the hell would you want to slow this down? It’s literally like aborting economic growth and human progress.

    1. That IS the plan, right ?

    2. The important thing is redistribution, not progress.

  11. It is obvious that Congress didn’t learn the lesson from the 1990 luxury tax of 10% on yachts, private airplanes & expensive cars. That tax cost thousands of jobs and ended up losing the treasury over $7 million in fiscal year 1991, instead of collecting the $31 million the idiots in Congress estimated.

    This will have a similar wrecking ball effect.

  12. And locally, Al Franken, the 60th vote needed to pass BarryCare, is going after his GOP opponent for initially not supporting using US steel IF (a big if) Keystone XL is approved. His opponent originally said they should be allowed to use the cheapest steel they could find. But this is the same Franken who was happy to vote for the device tax before he was against the device tax. Meanwhile, Medtronic happily inverts to an Irish company to avoid the stupid non-territorial US tax code.

  13. Few of you know ObamaCare was never designed to operate sufficiently!
    It was created to uninsured hundreds of thousands in the next few months and prepare the people for the new world of Obama.
    He told you all what he was about! No one listened!

  14. Simple Solution:
    PPACA regs should require that all ‘medical device’ manufacturers alter the name of their company to include some mention of “TEA Party, Patriot, etc”.
    The IRS will find them in an instant.

Please to post comments

Comments are closed.